How Do I Get A Good Credit Score?
Know Your Credit Part 6! One of the most frustrating things that I encountered while trying to understand my credit score was attempting to piece together all the scattered information on the subject. It is impossible to go to one place and get all the information you need, caveats and side notes included. The confusion led me to some poor financial decisions. Being that I do not want you to face the same difficulties I will create a string of blogs, that if followed in order will give you a complete understanding of credit scores in snack sized bits; all so you can digest it without being overwhelmed. At the end you will be the expert and run me out of town.
For many, improving their credit score is easier said than done. Debt can get out of control very easily and before you know it you’re in a hole. What if you are not in debt? What if you’re trying to establish good credit? The road for you can get difficult too as you're forced to scale barriers and distinguish fact from fiction. Don’t you wish there were a blog that helped you solve all these problems? Oh wait…
Here are the FOUR major pillars you need to establish to build and maintain good credit.
1. Understand, Ingrain, Apply
Ignorance is your worst enemy. Many people have bad credit because they don’t understand how their credit score is calculated and the importance behind that number. That’s why it is really important for you to know how you are scored. If you don’t, I suggest you read my short blog “What are Credit Scores.”
Sixty-five percent of your score is based on Payment History and Credit Usage. Luckily for us we have the most control over these factors on the day to day. Making sure you make payments on time every time is essential. Even if it’s the minimum on your card or finding whatever way you can to make the car, mortgage, or other loan payment on time. If you see that you will have a hard time making your payment contact the company. Tell them your situation and ask if they can extend the deadline. Many companies will accommodate.
When it comes to your use of credit, it is important to know that the less you use the better. Pay your cards in full whenever you can. If you see that your card is nearing or exceeding the 30% capacity refrain from adding on. Instead do your best to pay the existing charges as quickly as possible. That not only is financially responsible but credit agencies like to see that individuals are using less than 30% of their credit.
2. Credit Cards = Debit Cards
This is one of the best pieces of advice you can follow: “Use your credit card like you would use your debit card.” If you follow that you will probably keep yourself out of debt. It is really easy to lose track of how much money you are spending when you are using a credit card. That is why it is best for you to check and pay your credit cards every week. Waiting until the end of the month can come with surprises. “I took HOW many shots that Saturday?!”
3. Flashy Spending
I cannot tell you how many people I saw buying the “mean looking Dodge Charger” right after they graduated college with their degree in “Pencil Sharpening.” This “awesome” car will put most college graduates in serious debt. This leads me to rule number three of keeping a healthy credit score: do not take on debt that you cannot handle. Before you buy yourself the 200-inch tv ask yourself, “Do I really need this?” and “How long will it take for me to pay it off.”
You do not need to become a psychotic penny pincher but being a responsible adult means keeping yourself in line when no one else is looking. Be honest with yourself: can you do without that large purchase? Can you make food at home ones or twice a week and save yourself the 20 dollars?
4. When did I subscribe to “Things I never need?!”
We have all heard it before, either coming from someone else or because we’re saying it ourselves “I don’t know where the money went.” It’s almost like a ghost came in and purged your wallet or maybe it was grandma trying to fund her weekly card game?! Avoid this by knowing your fixed and variable expenses! A fixed expense is one that does not change e.g. utility bills, mortgage, cellphone etc. Variable expenses are ones you can control, like eating out every Friday, the coffee you buy every morning etc.
Knowing where your money is going is vital. It will make you appreciate the value of your dollar and it will keep you honest about your spending. If you combine this with a weekly or monthly budget you will likely create healthy financial habits that in the long run will keep you out of debt as well as keep your credit score strong.
In high school I once was having a conversation with a teacher about money. She and I had a similarly humble background. At some point she said to me “poor people like nice things too.” She is completely right. So many of us work 40+ hours a week and sometimes we want to pamper ourselves. We deserve it. The question is at what expense? At the expense of missing a payment or paying 25% APR on $300 for months?
I will not poor shame anyone. I know that every person has a different story and our struggles are relative. What is painful to you may not be painful to me, what is difficult for me may not be difficult for you. That why it is really important for you to be informed, responsible, and honest with yourself. You don’t need to live like an animal. Everyone deserves to feel respected and dignified. With that being said, live your best life today without destroying your life for tomorrow because you are going to have to live through that as well.
